Even when a company is making a loss, it is possible for shareholders to make a profit if they buy a good company at an appropriate price. For example, Amazon.com lost money for years after going public, but if you had bought and held the stock since 1999, you could have made a lot of money. But while history celebrates the rare successes, the failures are often forgotten. Does anyone remember Pets.com?
So the obvious question is, Crinetics Pharmaceutical (NASDAQ:CRNX) shareholders are debating whether they should be concerned about the company's cash burn rate. In this article, we define cash burn as annual (negative) free cash flow. This is the amount of money a company spends each year to fund growth. First, we compare its cash burn to its cash reserves to calculate its cash runway.
Check out our latest analysis for Crinetics Pharmaceuticals.
What is the funding runway for Crinetics Pharmaceuticals?
Cash runway is defined as the time it would take for a company to run out of cash if it continued to spend at its current cash burn rate. Crinetics Pharmaceuticals last reported its balance sheet in September 2023, and it had zero debt and cash worth US$555m. Importantly, his cash burn over the trailing twelve months was US$167m. So it had a cash runway of 3.3 years starting September 2023. This length of runway gives companies the time and space they need to develop their business. The image below shows how its cash balance has changed over the past few years.
How well is Crinetics Pharmaceuticals growing?
In fact, Crinetics Pharmaceuticals increased its cash burn by 60% in the last year, indicating that the company is increasing investment in its business. That in itself is concerning, but given the fact that operating revenue actually fell by 7.5% over the same period, we're positively upset. Taken together, we think these growth metrics are a bit concerning. The past is always worth studying, but it is the future that matters most. For this reason, it makes a lot of sense to see what analysts are predicting for the company.
Will Crinetics Pharmaceuticals be able to easily raise more funding?
Crinetics Pharmaceuticals appears to be in a pretty good position, but it's still worth considering how easily it can raise more capital, even if it's to fuel faster growth. Generally, listed companies can raise new cash by issuing stock or taking on debt. One of the main advantages of publicly traded companies is that they can sell stock to investors to raise cash and fund growth. By comparing a company's annual cash burn to its total market capitalization, we can roughly estimate how many shares it would have to issue to run the company for another year (at the same burn rate).
With a market capitalization of US$2.4b, Crinetics Pharmaceuticals's cash burn of US$167m represents approximately 7.0% of its market value. Because this is a low percentage, the company believes it can raise more cash to fund growth with some dilution or simply borrowing money.
So should we be worried about Crinetics Pharmaceuticals' cash burn?
This analysis of Clinetics Pharmaceuticals' cash burn makes us think its cash burn is reassuring, although we are a bit worried about its increasing cash burn. Considering all the factors discussed in this article, we're not too worried about the company's cash burn, but we think shareholders should keep an eye on how the company develops. Readers should fully understand business risks before investing in stocks. 3 warning signs for Crinetics Pharmaceuticals That's something potential shareholders should consider before committing to a stock.
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This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.